Essar Oil calls upon the govt to incentivise refinery expansion

India is a net exporter of petroleum products at present, but surging fuel consumption in an expanding economy will require the country to significantly add refining capacity to meet future needs. At 10.9%, the growth in the consumption of petroleum products far outstripped local production growth of 4.8% in 2015-16.Sanjeev Choudhary | July 02, 2016, 07:22 IST

Lalit Kumar Gupta--CEO Essar OilEssar Oil wants the government to incentivise expansion of existing refineries as national fuel consumption soars and the oil ministry embarks on the task to weigh the national refining capacity needs by 2040.

India is a net exporter of petroleum products at present, but surging fuel consumption in an expanding economy will require the country to significantly add refining capacity to meet future needs. At 10.9%, the growth in the consumption of petroleum products far outstripped local production growth of 4.8% in 2015-16. The exports shrank to 60.5 million tonnes in 2015-16 from 63.9 million tonnes in the previous year as domestic demand grew.

This and the swift pace at which the renewable energy is changing the energy consumption pattern worldwide have prompted the oil ministry to set up a committee to prepare a report for enhancing state refinery capacity by 2040.

The panel, comprising oil ministry officials and executives of state and private refiners, will assess primary energy mix of the country and demand for petroleum products by 2040 in its report to be submitted in three months.

“The government should offer incentives to refiners to expand capacity at their existing locations as this will help save cost and time substantially and bring huge investments in excess of Rs 2 lakh crore in next three years, giving a big boost to Make in India programme,” said Lalit Kumar Gupta, CEO of Essar Oil, sharing a list of demands including a nine-year tax holiday, a reasonable tariff barrier and an absence of inverted duty structure.

Essar Oil runs a 20 million tonne refinery in Gujarat where Reliance Industries also has a 60 million tonne refining complex. The balance 150 million tonnes of Indian refining capacity is controlled by state corporations such as Indian Oil, Bharat Petroleum and Hindustan Petroleum which have also undertaken massive brownfield expansion but haven’t sought any government incentive for this.

A brownfield expansion can save as much as 20% of the greenfield cost as the plant can make use of existing infrastructure at the site, Gupta said. The new capacity can further gain by using the marketing infrastructure set up for the existing refinery, he said.

“Setting up a greenfield refinery requires acquiring a big piece of land, which is extremely difficult these days as this requires large displacement of people. Obtaining green and other regulatory approvals is also much easier with the brownfield expansion,” Gupta said.

State firms are currently scouting for land in Maharashtra for setting up a new refinery of 60 million tonnes. Indian Oil Corporation plans to invest Rs 45,000 crore in adding 20 million tonnes at its existing 80 million tonnes refineries in the next five-seven years. Similarly, Hindustan Petroleum Corporation plans to raise capacity by two-thirds by 2020.

“To save the environment and to fight climate change, my government has planned a major campaign. By 2022, we want to generate 175 GW of renewable energy. In the last three years, we have already achieved 60 GW or around one-third of this target,” he said.